ASIC Issues interim stop order against FXCM over target market deficiencies

by CNM Legal

The Australian Securities and Investments Commission (ASIC) has issued an interim stop order preventing FXCM from issuing contracts for difference (CFDs) to retail clients due to deficiencies in its target market determination (TMD).

Reason for action

ASIC took action after identifying that FXCM’s TMD inappropriately included investors with a medium risk appetite within the target market for its CFDs. The regulator maintains that the inherent risks associated with CFD trading—including leverage, volatility, liquidity and pricing risks—make these products unsuitable for medium-risk appetite investors, irrespective of other investment criteria outlined in the TMD.

Scope of the order

The interim stop order prohibits FXCM from:

  • Issuing CFDs to retail clients
  • Opening new trading accounts for retail clients to trade CFDs

The order applies to CFDs referencing currency pairs and forex baskets, treasuries and commodities, stock indices, stocks and stock baskets, and cryptocurrencies. Existing clients may continue to vary or close their CFD positions.

Regulatory context

Under the design and distribution obligations regime, financial product issuers must define appropriate target markets for products offered to retail clients, considering product risks and features. Issuers must also establish distribution conditions ensuring products reach their intended market and avoid acquisition by consumers outside that market.